Gulf War Squeezes Pakistan's Informal Dollar Pipeline and Freezes Its Rate Decision

The war in the Gulf is reaching Pakistan through its balance of payments. Dawn reported that unofficial foreign-exchange inflows through the hundi and hawala networks, informal money-transfer systems that move billions of dollars outside the banking system, have declined sharply as the conflict continues, affecting small exporters and manufacturers. The same report noted that cryptocurrency investment is diverting further sums away from the local market.

Against that backdrop, Dawn reported that the State Bank of Pakistan is widely expected to keep its benchmark interest rate unchanged at its meeting on Monday, as policymakers avoid moving amid heightened uncertainty after the Gulf war. Economists cited by the paper said the risk of imported inflation from higher oil prices argues against any easing.

The domestic politics are tense. The opposition Pakistan Tehreek-e-Insaf criticized the government for raising fuel prices on ordinary citizens while approving a 1.8 billion rupee allowance package for senior bureaucrats who already receive free fuel, sharpening the sense of an economy under strain.